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Trust in Cohesive Communities

Author

Listed:
  • Felipe Balmaceda

    () (Facultad de Economía y Empresa, Universidad Diego Portales)

  • Juan Escobar

    () (Departamento de Ingenieria Industrial, Universidad de Chile)

Abstract

This paper investigates the social structures that maximize trust and cooperation when agreements are implicitly enforced. We study a repeated trust game in which the social network determines the information transmission technology. We show that cohesive communities, modeled as social networks of complete components, emerge as the optimal community design. Cohesive communities generate some degree of common knowledge of transpired play that allows players to coordinate their punishments and, as a result, yield relatively high equilibrium payo s. Our results provide an economic rationale for the commonly argued optimality of cohesive social networks.

Suggested Citation

  • Felipe Balmaceda & Juan Escobar, 2013. "Trust in Cohesive Communities," Working Papers 40, Facultad de Economía y Empresa, Universidad Diego Portales.
  • Handle: RePEc:ptl:wpaper:40
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    References listed on IDEAS

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    Cited by:

    1. Eleonora Patacchini & Edoardo Rainone, 2017. "Social ties and the demand for financial services," Temi di discussione (Economic working papers) 1115, Bank of Italy, Economic Research and International Relations Area.
    2. repec:kap:jfsres:v:52:y:2017:i:1:d:10.1007_s10693-017-0279-0 is not listed on IDEAS
    3. Eleonora Patacchini & Edoardo Rainone, 2014. "The Word on Banking - Social Ties, Trust, and the Adoption of Financial Products," EIEF Working Papers Series 1404, Einaudi Institute for Economics and Finance (EIEF), revised Jul 2014.

    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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